Only telecoms beat the sub-prime slide

Vodafone and
Carphone Warehouse bucked the trend yesterday in a market otherwise overwhelmed by further credit fears.

The two telecoms groups moved higher after positive noises from Lehman Brothers. The bank's analysts raised their target price for Vodafone to 215p, saying: "We reiterate Vodafone as one of our top picks and increase our earnings per share estimates by up to 10%. We believe that the interims on November 13 are an opportunity for management to tighten or even increase 2008 guidance." Vodafone ended up 4.2p at 188.2p.

As for Carphone, it added 8.25p to 353.25p ahead of its half-year figures due on Thursday. Lehman raised its target to 425p and upgraded from equal weight to overweight, partly based on the benefits the company should receive from the imminent iPhone launch.

Elsewhere, with Citigroup boss Charles Prince leaving after the world's biggest bank reported an extra $11bn in sub-prime-related losses and with the Qataris pulling out of their bid for J Sainsbury, the market was on the slide. At one point the FTSE 100 index was around 110 points lower, although it came off its worst levels to close down 69.2 points at 6461.4.

Banks were among the main losers, as investors fretted about who else would be hit by the turmoil. The feeling was if Citigroup had been forced to reveal losses on top of those it had already reported, it was unlikely to be alone.

So Alliance & Leicester was 29p lower at 701.5p on unsubstantiated rumours it had used the Bank of England's emergency funds. The mortgage bank later said it had raised all the funds it needed in recent weeks, and indeed was continuing a share buyback operation.

Barclays fell 16p to 521.5p, while Royal Bank of Scotland lost 11.25p to 464.25p and Northern Rock slipped 0.5p to 170.8p. Among the mid-caps Bradford & Bingley was off 9.75p at 272p.

After the collapse of the near-farcical attempt by a Qatar-backed consortium to buy Sainsbury's, the supermarket group slumped 115p to 440p. This is bad news for property entrepreneur Robert Tchenguiz, who owns a large chunk of the supermarket's shares. Other companies where Tchenguiz is a shareholder moved lower on worries that he may now be forced to sell. So pubs group Mitchells & Butlers lost 28p to 631p while Wm Morrison fell 8.75p to 283.5p. Computer games group SCi Entertainment, which also counts Tchenguiz as a shareholder, dropped 33.25p to 318.75p despite being in takeover talks.

British Airways lost 13.25p to 405p as ABN Amro downgraded from hold to sell. "We do not think the earnings support from terminal five will come soon enough to offset the negative effects on 2009 earnings of open skies and cyclical slowing. Sell with a new 360p target (down from 410p)." A jump in October transatlantic traffic had little effect.

Miners were also weaker on global economic worries, with Vedanta Resources down 86p to £21 and Xstrata 136p lower at £31.71.

Weekend reports that private equity group Apax could return to bid for ITV lifted the broadcaster by around 3% initially. But doubts soon set in and the shares lost much of their initial gains, slipping 0.9p to 95.3p by the close but still outperforming the wider market.

However, media analysts at Credit Suisse poured cold water on the idea of ITV as a takeover target. "We recently met with some bankers and private equity firms and the general view was that ITV was no longer an acquisition target," they said. "It was argued that 'it is too expensive', 'it is too big for any private equity firm in this sort of market', that [rival broadcaster] RTL 'doesn't have the cash or appetite for a big deal' and that there were no perceived buyers of ITV. One private equity firm 'follows ITV with interest' but believed 'ITV needs a major cost-cutting programme' for any value to be unlocked."

But outsourcing group Xchanging added 12.5p to 282p after investment manager General Atlantic sold 8.5% of the company at 280p a share worth £51m. This was raised from the originally proposed 7% because of good demand from institutions.

Lower down the market, recruitment minnow Greatfleet lost nearly 40% to 4.75p after it warned full-year profits would be significantly below expectations. It said it had discovered "certain matters which may have an impact on the outcome for the full year" and was investigating the situation. At the end of last month chief executive Stuart Blake stepped down due to ill health.

But DCD Media, the acquisitive TV production company chaired by David Elstein, added 5p to 59p. The company, whose programmes include Stephen Fry's HIV & Me and The Cooks, moved from a full-year pre-tax loss of £300,000 to a £1.36m profit.

Finally, Kurawood, which specialises in organically hardened softwood, added another 13.5p to 120p after being mentioned here on Saturday. Investors are hoping for news of order wins after upbeat presentations at a Birmingham building exhibition last week.

Unbroken Reed

Reed Elsevier fell 11p to 611p yesterday, but analysts are still positive on the publishing group. It has just unveiled plans to cut costs and jobs at its Lexis Nexis information division's operations in the US, and this could be a sign of things to come. Usman Ghazi at Dresdner Kleinwort said: "We suspect this announcement underlines the development of a group-wide cost-savings plan that could be announced at the November 15 trading update." Dresdner reckons Reed could make annual cost savings of £50m-£100m, adding 20p-50p a share. Ghazi believes there is industrial logic in the widely rumoured merger between Reed and Wolters Kluwer, but added: "We view a near-term deal as less than 50% probable. A cost-savings initiative by Reed looks more likely."